SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to __________________
Commission file number 0-21600
ECCS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2288911
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Sheila Drive, Tinton Falls, New Jersey 07724
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(Address of Principal Executive Offices) (Zip Code)
(732) 747-6995
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(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 30, 1998:
Class Number of Shares
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Common Stock, $0.01 par value 10,989,984
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ECCS, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION .........................................1
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Item 1. Financial Statements.........................................1
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 (audited)...................................2
Consolidated Statements of Operations for the three months
ended June 30, 1998 and June 30, 1997 and for the six months
ended June 30, 1998 and June 30, 1997 (unaudited)..................3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and
June 30, 1997 (unaudited)..........................................4
Notes to Consolidated Financial Statements (unaudited).............5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............10
Overview .........................................................10
Results of Operations.............................................11
Liquidity and Capital Resources...................................16
PART II. OTHER INFORMATION..............................................20
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Item 4. Submission of Matters to a Vote of Security Holders.........20
Item 6. Exhibits and Reports on Form 8-K............................21
SIGNATURES ............................................................22
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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ECCS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1998 1997
------------ -------------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents ..................... $ 9,021 $ 11,625
Accounts receivable, less allowance for
doubtful accounts of $288 and $297 at
June 30, 1998 and December 31, 1997,
respectively ................................. 5,059 5,737
Inventories ................................... 3,986 4,596
Prepaid expenses and other receivables ........ 485 506
-------- --------
18,551 22,464
Property, plant and equipment (net) .............. 1,934 1,372
Capitalized software (net) ....................... 1,145 811
Other assets ..................................... 255 345
-------- --------
Total Assets ........................... $ 21,885 $ 24,992
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Loans payable ................................. $ -- $ 1,031
Current portion of capital lease obligations .. -- 11
Accounts payable .............................. 2,569 3,833
Accrued expenses and other .................... 1,150 1,385
Warranty ...................................... 550 534
Customer deposits, advances and other credits . 290 410
-------- --------
4,559 7,204
Deferred rent .................................... 113 145
-------- --------
4,672 7,349
-------- --------
Shareholders' Equity:
Common stock, $0.01 par value per share,
Authorized, 20,000,000 shares; Issued and
outstanding, 10,989,984 shares and
10,918,188 shares at June 30, 1998 and
December 31, 1997, respectively ............... 110 109
Capital in excess of par value - common ......... 25,792 25,615
Deficit ......................................... (8,689) (8,081)
-------- --------
17,213 17,643
-------- --------
Total Liabilities and Shareholders' Equity .... $ 21,885 $ 24,992
======== ========
See notes to consolidated financial statements.
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ECCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales .............................. $ 6,469 $ 9,103 $14,709 $ 17,840
Cost of sales .......................... 4,502 6,513 10,312 12,848
-------- ------- ------- --------
Gross profit .......................... 1,967 2,590 4,397 4,992
Operating expenses:
Selling, general & administrative ..... 2,053 1,864 3,900 3,486
Research & development ................ 717 319 1,321 696
-------- ------- ------- --------
Operating (loss) income ............... (803) 407 (824) 810
Net interest (income) expense ....... (91) 54 (216) 112
-------- ------- ------- --------
Net (loss) income ...................... $ (712) $ 353 $ (608) $ 698
-------- ------- ------- --------
Preferred dividends .................... -- 77 -- 154
-------- ------- ------- --------
Net (loss) income applicable to
common shares .......................... $ (712) $ 276 $ (608) $ 544
========= ======= ======= ========
(LOSS) EARNINGS PER COMMON SHARE:
Net (loss) income per common
share - basic ......................... $ (0.07) $ 0.06 $ (0.06) $ 0.12
========= ======= ======= ========
(LOSS) EARNINGS PER COMMON SHARE
ASSUMING DILUTION:
Net (loss) income per common share -
diluted ............................. $ (0.07) $ 0.04 $ (0.06) $ 0.08
========= ======= ======= ========
Weighted average number of common
and dilutive shares - basic ............ 10,958 4,470 10,938 4,464
========= ======= ======= ========
Weighted average number of common
and dilutive shares - diluted .......... 10,958 9,023 10,938 9,007
========= ======= ======= ========
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ECCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six Months Ended June 30,
-------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ........................................... $ (608) $ 698
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization ........................... 533 595
Decrease (increase) in accounts receivable .............. 678 (3,855)
Decrease (increase) in inventories ...................... 610 (922)
Decrease (increase) in prepaid expenses and other ....... 111 (319)
Increase in payable to Finova Group/AT&T Commercial ..... -- 718
(Decrease) increase in accounts payable,
accrued liab., deferred rent and other ................ (1,515) 537
Decrease in customer deposits, advances and other
credits ............................................... (120) (324)
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Net cash used in operating activities ......................... (311) (2,872)
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Cash flows from investing activities:
Additions to property, plant and equipment ................. (978) (111)
Additions to capitalized software .......................... (451) (283)
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Net cash used in investing activities ......................... (1,429) (394)
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Cash flows from financing activities:
Borrowings under revolving credit agreement ................ 2,373 10,157
Repayments under revolving credit agreement ................ (3,404) (10,060)
Repayment of long term debt and capital lease obligations .. (11) (55)
Net proceeds from exercise of employee stock options
and issuance of common stock.............................. 178 170
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Net cash (used in) provided by financing activities ........... (864) 212
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Net decrease in cash and cash equivalents ..................... (2,604) (3,054)
Cash and cash equivalents at beginning of period .............. 11,625 4,393
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Cash and cash equivalents at end of period .................... $ 9,021 $ 1,339
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................ $ 48 $ 112
========== ==========
</TABLE>
See notes to consolidated financial statements.
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ECCS,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - - Basis Of Presentation
The information presented for June 30, 1998, and for the three month and
six month periods ended June 30, 1998 and June 30, 1997, is unaudited, but, in
the opinion of the management of ECCS, Inc. ("ECCS" or the "Company"), the
accompanying unaudited consolidated financial statements contain all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for the fair presentation of the Company's financial position as of
June 30, 1998, the results of its operations for the three and six-month periods
ended June 30, 1998 and June 30, 1997, and its cash flows for the six-month
periods ended June 30, 1998 and June 30, 1997. The consolidated financial
statements included herein have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1997, which were included as part of the Company's Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company balances and transactions
have been eliminated.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year.
Note 2 - - Summary Of Significant Accounting Policies
(a) Organization and Business
ECCS provides intelligent solutions to store, protect and access mission
critical information for the Open Systems and related markets. The Company
designs, manufactures and sells high performance, fault tolerant data storage
solutions for a wide range of customer requirements.
From its founding until 1994, the Company's principal business was the
value-added resale of NCR products. Sales to AT&T business units made up a large
portion of such business. During 1994, as a result of AT&T's acquisition of NCR
and subsequent change in its purchasing policies, the Company undertook a
product development initiative to reposition the Company as a provider of
proprietary mass storage enhancement products. A number of products have
resulted from these efforts including Synchronix and Synchronection-FT, a fault
tolerant network file server.
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ECCS,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Cash and Cash Equivalents
The Company considers short-term investments with a maturity of three
months or less when purchased to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
Inventories consist of the following (in thousands):
June 30, December 31,
1998 1997
-------- ------------
(unaudited)
Purchased parts .................................. $2,831 $2,496
Finished goods ................................... 2,037 2,808
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4,868 5,304
Less: inventory valuation reserve ........... 882 708
------ ------
$3,986 $4,596
====== ======
(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided on a straight-line basis over their estimated useful
lives ranging from 3 to 5 years.
Equipment under capital leases is recorded at the lower of fair value or
present value of minimum lease payments at the inception of the lease.
Amortization of the leased property is computed using the straight-line method
over the term of the lease.
(e) Fair Value of Financial Instruments
The fair value amounts for cash, accounts receivable and short term debt
approximate carrying amounts due to the short maturity of these instruments.
(f) Software Development Costs
The Company capitalizes software development costs in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 86. Such costs are
capitalized after technological feasibility has been demonstrated. Such
capitalized amounts are amortized commencing with product introduction on a
straight-line basis utilizing the estimated economic life ranging from one to
three years. Amortization of capitalized software development is charged to cost
of sales and aggregated $117,000 and $281,000 for the periods ended June 30,
1998 and June 30, 1997, respectively. At June 30, 1998 and December 31, 1997,
the Company had capitalized $3,066,000 and $2,615,000 of software development
costs, respectively, of which $1,921,000 and
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ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$1,804,000 had been amortized,respectively.
(g) Impairment of Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which had no
effect on its financial condition or results of operations. The Company records
impairment losses on long-lived assets used in operations or expected to be
disposed of when events and circumstances indicate that the cash flows expected
to be derived from those assets are less than the carrying amounts of those
assets. No such events and circumstances have occurred.
(h) Revenue Recognition
In general, revenue is recognized upon shipment of the product or system
or as services are provided. Periodically, revenue is recognized for product
which is being held at the customer's request. Revenue is only recognized on
such product when all risks of ownership have passed to the customer and the
Company has no specific performance obligations remaining. Revenues related to
maintenance contracts are recognized over the respective terms of the
maintenance contracts. Revenue for certain major product enhancements and major
new product offerings, for which the Company believes that significant product
development risks may exist which can realistically only be addressed during
live beta testing at end-user sites, is not recognized until successful
completion of such end-user beta testing.
(i) Warranty
Estimated future warranty obligations related to ECCS products are
provided by charges to operations in the period the related revenue is
recognized.
(j) Research and Development Costs
Research and development costs are expensed as incurred, except for
software development costs which are accounted for as noted above.
(k) Income Taxes
Income taxes are accounted for by the liability method in accordance
with the provisions of SFAS No. 109, Accounting for Income Taxes.
(l) Stock Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for
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ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
(m) Per Share Information
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the SFAS No. 128 requirements.
(n) Use of Estimates
The preparation of interim financial statements in accordance with
generally accepted accounting principles for interim financial information
requires management to make estimates and assumptions that affect the amounts
reported in the interim financial statements and accompanying notes. Actual
results could differ from such estimates.
(o) Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, which
is effective for years beginning after December 15, 1997. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also established standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for financial statements for fiscal years beginning after December
15, 1997. Management has completed its review of SFAS No. 131, and concluded
that the adoption of this statement does not have a significant effect on the
Company's reported segments.
Note 3 - - Litigation
There are no individual material litigation matters pending to which the
Company is a party or to which any of its property is subject.
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ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - - Convertible Preferred Stock
The Company has an authorized class of 3,000,000 shares of Preferred Stock
which may be issued by the Board of Directors on such terms and with such
rights, preferences and designations as the Board may determine.
Note 5 - - Cancellation and Reissuance of Stock Options
On October 28, 1997, the Company granted options to purchase (i) 498,400
shares of its common stock, $.01 par value (the "Common Stock") outside of the
Company's registered stock option plans, and (ii) 106,000 shares of its Common
Stock under the 1996 Stock Plan ((i) and (ii) are collectively referred to as
the "Options"), to certain officers and employees at an exercise price of $8.00
per share. On February 18, 1998, the Company canceled the Options previously
granted on October 28, 1997. In addition, on February 18, 1998, the Company
reissued the Options to certain officers and employees at an exercise price of
$4.00 per share.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
ECCS provides intelligent solutions to store, protect and access mission
critical information for the Open Systems and related markets. The Company
designs, manufactures and sells high performance, fault tolerant data storage
solutions for a wide range of customer requirements.
From its founding until 1994, the Company's principal business was the
value added resale of NCR products. Sales to the AT&T business units made up a
large portion of such business. During 1994, as a result of AT&T's acquisition
of NCR and subsequent change in its purchasing policies, the Company undertook a
product development initiative to reposition the Company as a provider of
proprietary mass storage enhancement products. In 1995, the Company's sales of
its proprietary products exceeded its sales as a value added reseller ("VAR")
due to both increasing sales of its own products and decreasing sales as a VAR.
Beginning in 1996, a substantial portion of the Company's revenues has been
generated from sales of its own products.
The Company's revenues are generated from three primary sources: (i)
revenues derived from sales of mass storage enhancement products, which include
sales of all ECCS mass storage enhancement products, including the Synchronix
family of products, and sales of certain third party component products that are
incorporated into such mass storage enhancement systems; (ii) revenues generated
by the Company as a VAR which include the Company's sales to AT&T business units
for non-storage related products; and (iii) revenues derived from services and
other revenue which include professional services and maintenance contracts. The
Company believes that revenues generated by the Company as a VAR, which include
sales to AT&T business units of non-storage related products, will be minimal in
the future.
The statements contained in this quarterly Report on Form 10-Q that are
not historical facts are forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995). Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
These forward-looking statements, such as statements regarding anticipated
future revenues, capital expenditures, research and development expenditures and
other statements regarding matters that are not historical facts, involve
predictions. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements contained in this quarterly Report on Form 10-Q.
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Results of Operations (Dollars in Thousands)
Three Months Ended June 30, 1998 and 1997
-----------------------------------------
Net Sales
Net sales decreased by approximately $2,634 or 28.9% in the three months
ended June 30, 1998, as compared to net sales in the three months ended June 30,
1997. Sales of the Company's proprietary mass storage enhancement systems,
including sales of certain third party component products, accounted for 95% and
96% of net sales in the quarters ended June 30, 1998 and 1997, respectively.
Sales by the Company in its capacity as a VAR accounted for 2% and 1% of net
sales in the quarters ended June 30, 1998 and 1997, respectively. Services and
other revenues accounted for 3% of net sales in both the quarters ended June 30,
1998 and 1997, respectively. The decrease in the 1998 period resulted primarily
from a decrease in sales of the Company's mass storage enhancement systems to
the U. S. Air Force through a Federal integrator.
Sales to the U. S. Air Force through a Federal integrator were $1,199
and accounted for approximately 18.5% of net sales in the quarter ended June
30, 1998. Sales to the U. S. Air Force in this quarter declined by
approximately 78% as compared to the quarter ended June 30, 1997. The Company
believes that sales to the U. S. Air Force will continue to comprise a
significant portion of the Company's net sales for at least the next 12
months. However, there can be no assurance that the U. S. Air Force will
continue to purchase from the Company at historical levels, if at all.
Sales to alternate channel partners were $3,125 and accounted for
approximately 48.3% of net sales in the quarter ended June 30, 1998. Such sales
represent a 51% increase over sales to alternate channel partners in the second
quarter of 1997, and are primarily attributable to the Company's continued
efforts to expand and enhance its alternate channel relationships with both new
and existing partners. Sales to the Company's primary alternate channel partner,
Unisys Corporation ("Unisys"), accounted for approximately 28% of the Company's
net sales in the quarter ended June 30, 1998. There can be no assurance that
Unisys will continue to place orders with the Company or that orders from Unisys
will continue at their previous levels.
While the Company has an OEM agreement with Unisys that defines the terms
of the sales and support services provided thereunder, this agreement does not
include specific quantity commitments. The Company's sales are made by purchase
order and, therefore, the Company has no long-term commitments from Unisys and
such customer generally may cancel orders on 30 days notice. Accordingly, there
can be no assurance that orders from Unisys will continue at their historic
levels, or that the Company will be able to obtain any new orders from Unisys.
The loss of Unisys as a customer, or the cancellation or rescheduling of orders
already placed, would materially and adversely affect the Company's business,
financial condition and operating results.
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<PAGE>
During the first quarter of 1997, the Company commenced selling products
to Tandem Computers Incorporated ("Tandem"). Sales to Tandem accounted for
approximately 15.8% of the Company's net sales in the quarter ended June 30,
1998. In January 1998, Compaq Computer Corp. ("Compaq"), the corporate owner of
Tandem, announced its planned acquisition of Digital Equipment Corp.
("Digital"), a competitor of the Company. Presently, it is too early to
accurately determine the impact of Compaq's potential acquisition of Digital on
the Company's direct sales to Tandem.
The Company continues efforts to establish potential OEM relationships for
specialized and standard versions of its Synchronix product line, in addition to
its relationships with Unisys and Tandem. There can be no assurance, however,
that such additional relationships will be established, or if established, that
they will decrease the Company's reliance on its OEM relationships with Unisys
and Tandem.
Sales to the Company's commercial customers were $2,144 and accounted for
approximately 33% of net sales in the quarter ended June 30, 1998. Such sales
represent a 44% increase over sales to commercial accounts in the quarter ended
June 30, 1997.
Gross Profit
The Company's cost of sales includes primarily the cost of purchased
material, direct labor and related overhead expenses, and amortization of
capitalized software. The Company's gross profit decreased by approximately $623
to approximately $1,967 from $2,590 in the three months ended June 30, 1997.
Such decrease in gross profit is due primarily to the lower volume of sales to
the U. S. Air Force through a Federal integrator during the second quarter of
1998, a large proportion of which consists of third party components integrated
with the Company's proprietary mass storage enhancement products. Third party
components generally have lower gross profit than the Company's proprietary
products. As a result of lower sales to the U. S. Air Force, the Company's gross
profit percentage increased to 30.4% in the three months ended June 30, 1998, as
compared to 28.5% in the corresponding period in the prior year.
Operating Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries, commissions, and travel costs for sales and marketing personnel, trade
shows and expenses associated with the Company's management, accounting,
contract and administrative functions. The Company anticipates that SG&A
spending levels will decrease as a percentage of sales to the extent sales to
OEMs increase as a percentage of sales. Sales to OEMs typically absorb much of
the administrative burden otherwise incurred by the Company. SG&A expenses
increased as a percentage of net sales representing 32% and 21% for the three
months ended June 30, 1998 and 1997, respectively. SG&A expenses increased by
$189 to $2,053 in the three months ended June 30, 1998 from $1,864 in the three
months ended June 30, 1997. Such increase was due primarily to lower sales
volume, the hiring of additional sales and marketing
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personnel and enhanced efforts to market new product developments, offset, in
part, by lower commissions resulting from lower sales volume. Salaries,
commissions, bonuses, employee benefits and payroll taxes were the largest
components of SG&A expenses, accounting for 68% and 60% of such expenses in the
three months ended June 30, 1998 and June 30, 1997, respectively.
Research and development expenses consist primarily of salaries and
benefits paid to engineers and programmers and other related overhead expenses.
These expenses increased in the three months ended June 30, 1998 by $398 or 125%
from $319 in the corresponding period of the prior year. This increase is due
primarily to the hiring of additional engineers to continue the product
development initiative associated with the enhancements to the Company's
proprietary mass storage products and to the development of a new technology
center. Such expenses for the second quarter of 1998 represented approximately
11.1% of the Company's net sales and, including the amount capitalized in
accordance with SFAS No. 86, represented approximately 15.3% of the Company's
net sales. Research and development expenses are anticipated to increase
substantially, in the near future, to enable the Company to update and expand
upon its existing product offerings and to integrate its products into systems
of future OEMs.
Research and development products for which the Company expects to devote
resources in the near future relate to: (i) the continued development of a new
technology center; (ii) a next generation of the Synchronix family of products;
(iii) the development of a distributed file system storage architecture; (iv)
new interface connectivities; (v) customized OEM products; and (vi) the
development of a ServerNet product with Tandem. The Company believes that the
anticipated increase in its research and development investment could adversely
affect earnings in the next six months.
Net Interest (Income)Expense
Net interest income was $91 for the three months ended June 30, 1998,
while net interest expense was $54 for the three months ended June 30, 1997.
Such fluctuation was due principally to higher cash balances resulting from cash
generated by the Company's follow-on public offering in August 1997 and a
reduction in the borrowings against the Company's accounts receivable line of
credit.
Six Months Ended June 30, 1998 and 1997
---------------------------------------
Net Sales
Net sales decreased by approximately $3,131 or 17.6% in the six months
ended June 30, 1998, as compared to net sales in the six months ended June 30,
1997. Sales of the Company's proprietary mass storage enhancement systems,
including sales of certain third party component products, accounted for 93% and
94% of net sales in the six months ended June 30, 1998 and 1997, respectively.
Sales by the Company in its
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capacity as a VAR accounted for 2% and 1% of net sales in both the six months
ended June 30, 1998 and 1997, respectively. Services and other revenues
accounted for 5% of net sales in both the six-month periods ended June 30, 1998
and 1997, respectively. The decrease in the 1998 period resulted primarily from
a decrease in sales of the Company's mass storage enhancement systems to the U.
S. Air Force through a Federal integrator.
Sales to the U. S. Air Force through a Federal integrator were $4,238
and accounted for approximately 29% of net sales in the six months ended June
30, 1998. Sales to the U. S. Air Force in the six months ended June 30, 1998
declined by approximately 58% as compared to such sales in the six months
ended June 30, 1997. The Company believes that sales to the U. S. Air Force
will continue to comprise a significant portion of the Company's net sales for
at least the next 12 months. However, there can be no assurance that the U.
S. Air Force will continue to purchase from the Company at historical levels,
if at all.
Sales to alternate channel partners were $6,851 and accounted for
approximately 47% of net sales in the six months ended June 30, 1998. Such sales
represent a 48% increase over sales to alternate channel partners in the
comparable period of 1997. Such increase is primarily attributable to the
Company's continued efforts to expand and enhance its alternate channel
relationships with both new and existing partners. Sales to the Company's
primary alternate channel partner, Unisys accounted for approximately 25% of the
Company's net sales in the six months ended June 30, 1998. There can be no
assurance that Unisys will continue to place orders with the Company or that
orders from Unisys will continue at their previous levels.
During the first quarter of 1997, the Company commenced selling products
to Tandem. Sales to Tandem accounted for approximately 15.4% of the Company's
net sales in the six months ended June 30, 1998.
On March 24, 1998, the Company announced that it had signed a corporate
purchasing agreement with Tandem pursuant to which Tandem has the ability to
purchase Synchronix from the Company and resell Synchronix under a private label
with Tandem's own systems. The Company's sales to Tandem will be made by
purchase order. Therefore, the Company has no long-term commitments from Tandem
and Tandem generally may cancel orders upon appropriate written notice to the
Company. There can be no assurance that orders from Tandem will continue at
their historic levels or that the Company will be able to obtain any new orders
from Tandem.
Sales to the Company's commercial customers represented $3,620 and
accounted for approximately 25% of net sales in the six months ended June 30,
1998. Such sales represent a 16% increase over sales to commercial accounts in
the six months ended June 30, 1997.
Certain sales previously classified as sales to commercial customers in
the six months ended June 30, 1997 have been reclassified as sales to the U.S.
Air Force through
-14-
<PAGE>
a federal integrator for the six months ended June 30, 1997. Such
reclassification has been reflected in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
Gross Profit
The Company's gross profit decreased by approximately $595 in the six
months ended June 30, 1998 to approximately $4,397 from $4,992 in the six months
ended June 30, 1997. Such decrease in gross profit is due primarily to the lower
volume of sales to the U. S. Air Force through a Federal integrator during the
six months ended June 30, 1998, a large proportion of which consists of third
party components integrated with the Company's proprietary mass storage
enhancement products. Third party components generally have lower gross profit
than the Company's proprietary products. As a result of lower sales to the U.S.
Air Force, the Company's gross profit percentage increased to 29.9% in the six
months ended June 30, 1998, as compared to 28% in the corresponding period of
the prior year.
Operating Expenses
SG&A expenses increased by $414 to $3,900 in the six months ended June 30,
1998 from $3,486 in the six months ended June 30, 1997. SG&A expenses increased
as a percentage of net sales representing 26.5% and 19.5% for the six months
ended June 30, 1998 and 1997, respectively. The Company anticipates that SG&A
spending levels will decrease as a percentage of sales to the extent sales to
OEMs increase as a percentage of sales. Sales to OEMs typically absorb much of
the administrative burden otherwise incurred by the Company. Such increases were
due primarily to lower sales volume and the hiring of additional sales and
marketing personnel, coupled with enhanced efforts to market the Company's
current and new product offerings. Salaries, commissions, bonuses, employee
benefits and payroll taxes were the largest components of SG&A expenses,
accounting for 70% and 62% of such expenses in the six months ended June 30,
1998 and June 30, 1997, respectively.
Research and development expenses increased in the six months ended June
30, 1998 by $625 or 90% from $696 in the corresponding period of the prior year.
This increase is due primarily to the hiring of additional engineers to continue
the product development initiative associated with the enhancements to the
Company's proprietary mass storage products and to the development of a new
technology center. Such expenses for the six months ended June 30, 1998
represented approximately 9% of the Company's net sales and, including the
amount capitalized in accordance with SFAS No. 86, represented approximately
12.1% of the Company's net sales.
Net Interest (Income) Expense
Net interest income was $216 for the six months ended June 30, 1998, while
net interest expense was $112 for the six months ended June 30, 1997. Such
fluctuation was
-15-
<PAGE>
due principally to higher cash balances resulting from cash generated by the
Company's follow-on public offering in August 1997 and a reduction in the
borrowings against the Company's accounts receivable line of credit.
LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
Since 1994, the Company has funded its operations primarily from cash
generated by operations augmented with funds from borrowings under a line of
credit and inventory financing and through private and public sales of equity
securities. On June 30, 1998, the Company's cash balance was approximately
$9,000.
Net cash used in operating activities was $311 and $2,872 for the six
months ended June 30, 1998, and June 30, 1997, respectively. Such use of cash in
1998 resulted primarily from a decrease in accounts payable and accrued
liabilities offset, in part, by a decrease in inventory and accounts receivable.
Net cash used in financing activities was $864 for the six months ended June 30,
1998, while net cash provided by financing activities was $212 for the six
months ended June 30, 1997. Such use of cash in 1998 resulted primarily from a
net reduction of certain loans payable.
The Company used $978 and $111 for the acquisition of equipment by direct
purchase during such respective periods. Such expenditures in 1998 primarily
consisted of a capital investment associated with the Company's new
enterprise-wide ERP software system, as well as capital equipment relating to
the Company's research and development efforts. Total capital expenditures for
1998 are expected to be approximately $1,500, although such amounts are not
subject to formal commitments. The Company anticipates that such expenditures
will include the purchase of capital equipment for research and development and
general corporate use. There are no other material commitments for capital
expenditures currently outstanding. The net activities, under the Company's
accounts receivable financing facility, were payments of $1,031 and borrowings
of $97 for the six months ended June 30, 1998 and 1997, respectively.
The Company's working capital was $14,000 and $15,300 at June 30, 1998
and December 31, 1997, respectively.
On July 9, 1997, the Company entered into a full recourse factoring
facility with NationsBanc Commercial Corporation ("NCC") which provides for
aggregate advances not to exceed the lesser of $7,000 or up to 85% of Eligible
Receivables (as defined). Interest on such advances is payable monthly in
arrears at the prime lending rate and the Company is obligated to pay certain
annual fees. The factoring facility is for a period of three years (unless
terminated by NCC by providing the Company sixty days prior written notice)
beginning on July 30, 1997. The obligations of the Company under such agreement
are collateralized by substantially all of the assets of the Company. As of June
30, 1998, the Company had no balance outstanding under this full recourse
factoring facility.
-16-
<PAGE>
On May 17, 1996, the Company's direct pay line of credit with AT&T
Commercial Finance Corporation ("AT&T-CFC") was terminated and its general line
of credit with AT&T-CFC was increased to $2,000. Effective December 1, 1997, The
Finova Group Inc. ("Finova") acquired the Company's general line of credit with
AT&T-CFC. The agreement with Finova contains covenants relating to net worth,
total assets to debt and total inventory to debt. The Company's obligations
under the agreement with Finova are collateralized by substantially all of the
assets of the Company. Finova extended such general line of credit to April 30,
1999, on the same terms and conditions.
The Company uses its line of credit with Finova to augment its purchasing
ability with various vendors. The Company relied on this line of credit for 1%
and 16% of its inventory acquisitions, respectively, the majority of which were
purchases from Tech Data Corporation in the six months ended June 30, 1998, and
Bell Microproducts and Tech Data Corporation in the six months ended June 30,
1997. The maximum amount, during the preceding twelve months, that the Company
has drawn under such general line of credit has been approximately $69. As of
June 30, 1998, the Company had no balance outstanding under this credit line,
and available credit under such line towards future inventory purchases was
$2,000.
AT&T-CFC and NCC had entered into an intercreditor subordination agreement
with respect to their relative interest in substantially all of the Company's
assets. Effective December 1, 1997, Finova entered into such intercreditor
subordination agreement with NCC.
The Company's agreement with NCC restricts the Company's ability to pay
certain dividends without NCC's prior written consent. The Company's agreement
with Finova prohibits the payment of dividends. AT&T-CFC, the previous lender
under the Finova line of credit, waived such prohibition in connection with the
dividend payments made to the former holders of the Series B Preferred Stock and
Series C Preferred Stock.
During 1997, the Company utilized $222 of net operating loss carryover
("NOL") for federal tax purposes. The Company has a NOL for Federal income tax
purposes of approximately $7,174 which will begin to expire 2009. The Company
also has research and development tax credit carryovers for Federal income tax
purposes of approximately $226 which will begin to expire in 2009. In addition,
the Company has alternative minimum tax credits of approximately $68. These
credits can be carried forward indefinitely. The Company experienced a change in
ownership in 1996 as defined by Section 382 of the Internal Revenue Code.
Accordingly, future use of these NOLs and income tax credits may be limited.
The Company also has approximately $9,974 of state NOL carryforwards which
will begin to expire in 2001 and state research and development tax credit
carryforwards of $219 as of December 31, 1997.
Under SFAS No. 109, a valuation allowance is established, if based on the
weight
-17-
<PAGE>
of available evidence, it is more likely than not that a portion of the deferred
tax asset will not be realized. Accordingly, a full valuation allowance has been
provided to offset the Company's net deferred tax assets because the Company is
in a cumulative loss position. Such valuation allowance will be reassessed
periodically by the Company.
In February 1998, the Company's Board of Directors approved resolutions
authorizing the expenditure of up to $1,000 dollars for the research and
development of a distributed file system storage architecture and other
significant enhancements to the current Synchronix product family. As of June
30, 1998, the Company expended approximately $110 on such research and product
developments.
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than the year
2000. This, in turn, could result in major system failures or miscalculations,
and is generally referred to as the "Year 2000 Problem." In December 1997, the
Company began developing an implementation plan for a new enterprise management
system to internally resolve the Year 2000 Problem. The Company expects to
complete such implementation by the first quarter of 1999. As part of the
process, the Company is currently evaluating options with respect to the
replacement of certain hardware and software to make its computer systems Year
2000 compliant. Presently, the Company does not believe that Year 2000
compliance will result in material investments by the Company, nor does the
Company anticipate that the Year 2000 Problem will have material adverse effects
on the business operations or financial performance of the Company. There can be
no assurance, however, that the Year 2000 Problem will not adversely affect the
Company's business, operating results and financial condition.
The Company believes that each of Synchronix, Synchronection-FT and Raven
UX 410 is Year 2000 compliant and has so advised its customers. However, the
Company has not performed a comprehensive test of such products to determine
that they are Year 2000 compliant. In addition, the Company has no control over
software modifications made by third parties or the combination of its products
with software programs or hardware that is not Year 2000 compliant or that
software developed by third parties and combined with the Company's products
will be Year 2000 compliant. Additionally, there can be no assurance that such
potential instances of non-compliance will not adversely affect the Company's
business, operating results and financial condition. The Company has established
no reserves for expenses associated with correcting Year 2000 compliance issues
or for any liability associated with such non-compliance.
Although the Company believes its products are Year 2000 compliant, the
purchasing patterns of customers and potential customers may be affected by
issues associated with the Year 2000 Problem. As companies expend significant
resources to correct their current data storage solutions, these expenditures
may result in reduced funds available to purchase products such as those offered
by the Company. There can be
-18-
<PAGE>
no assurance that the Year 2000 Problem will not adversely affect the Company's
business, operating results and financial condition.
The Company believes that its existing available cash, credit facilities
and the cash flow expected to be generated from operations, will be adequate to
satisfy its current and planned operations for at least the next 12 months.
The Company's operating results are affected by seasonal factors,
particularly the spending fluctuations of its largest customers including
Unisys, Tandem and the Federal government. Due to the relatively fixed nature of
certain of the Company's costs, a decline in net sales in any fiscal quarter
will have a material adverse effect on that quarter's results of operations. The
Company does not expect such spending fluctuations to be altered in the future.
A significant reduction in orders from any of the Company's largest customers
could have a material adverse effect on the Company's results of operations.
There can be no assurance that the Company's largest customers will continue to
place orders with the Company or that orders of its customers will continue at
their previous levels.
-19-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company (the "Meeting") was held
on June 4, 1998.
There were present at the Meeting either in person or by proxy common
shareholders holding an aggregate of 8,362,662 shares out of a total number of
10,919,163 shares issued, outstanding and entitled to vote at the Meeting. The
results of the vote taken at the Meeting with respect to each nominee for
director were as follows:
NOMINEE FOR WITHHELD
Michael E. Faherty 8,322,372 Shares 40,290 Shares
Gale R. Aguilar 8,323,172 Shares 39,490 Shares
Gregg M. Azcuy 8,323,172 Shares 39,490 Shares
James K. Dutton 8,323,172 Shares 39,490 Shares
Donald E. Fowler 8,323,172 Shares 39,490 Shares
Frank R. Triolo 8,323,172 Shares 39,490 Shares
Thomas I. Unterberg 8,323,172 Shares 39,490 Shares
Also at the Meeting, a vote was taken on the proposal to amend the
Company's 1996 Stock Plan to increase the number of shares of Common Stock
reserved for issuance upon exercise of options granted under such plan from
600,000 to 1,600,000 shares. Of the 8,362,662 shares present at the Meeting in
person or by proxy, 2,998,015 shares were voted in favor of such proposal,
418,134 shares were voted against such proposal and 31,598 shares abstained from
voting. There were also 4,914,915 broker non-votes with respect to such
proposal.
In addition a vote was taken at the Meeting on the proposal to amend the
Company's 1995 Employee Stock Purchase Plan to increase the number of shares of
Common Stock reserved for issuance under such plan from 150,000 to 400,000
shares. Of the 8,362,662 shares present at the Meeting in person or by proxy,
3,122,327 shares were voted in favor of such proposal, 294,552 shares were voted
against such proposal and 30,868 shares abstained from voting. There were also
4,914,915 broker non-votes with respect to such proposal.
Finally, a vote was taken at the Meeting on the proposal to ratify the
appointment of Ernst & Young, LLP as the independent auditors of the Company for
the fiscal year ending December 31, 1998. Of the 8,362,662 shares present at the
Meeting in person or by proxy, 8,005,669 shares were voted in favor of such
proposal, 339,445 shares were voted against such proposal and 17,548 shares
abstained from voting.
-20-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Calculation of Earnings Per Share
27.1 Financial Data Schedule for the period ended June 30, 1998.
27.2 Restated Financial Data Schedule for the period
ended September 30, 1997.
27.3 Restated Financial Data Schedule for the period ended
June 30, 1997.
27.4 Restated Financial Data Schedule for the period ended
March 31, 1997.
(b) Reports on Form 8-K.
None.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECCS, Inc.
Date: July 31, 1998 By: /s/ Gregg M. Azcuy
-----------------------------
Gregg M. Azcuy, President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 7, 1998 By: /s/ Louis J. Altieri
-----------------------------
Louis J. Altieri, Vice President,
Finance and Administration
(Principal Financial and
Accounting Officer)
-22-
<TABLE>
<CAPTION>
EXHIBIT 11
Calculation of Earnings per Share
(In Thousands)
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Numerator: ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income .......................................... $(712) $ 353 $ (608) $ 698
Preferred stock dividends .................................. -- (77) -- (154)
------ ------- ------- -------
Numerator for basic earnings per share -
income (loss) available to common shareholders ............. $(712) 276 -- 544
Effect of dilutive securities:
Preferred stock dividends .................................. -- 77 -- 154
Interest on unpaid preferred stock dividends ............... -- 7 -- 14
------ ------- ------- -------
-- 84 -- 168
Numerator for dilutive (loss) earnings per share -
income (loss) available to common shareholders after
assumed conversion ......................................... $(712) 360 (608) 712
Denominator:
Denominator for basic (loss) earnings per share-
weighted-average shares .................................... 10,958 4,470 10,938 4,464
Effect of dilutive securities:
Employee stock options and warrants ........................ -- 783 -- 773
Convertible preferred stock ................................ -- 3,770 -- 3,770
------ ------- ------- -------
-- 4,543 -- 4,543
Dilutive potential common shares
Denominator for diluted (loss) earnings per
share Adjusted weighted-average shares and
assumed conversion ......................................... 10,958 9,023 10,938 9,007
======== ===== ====== =====
Basic (loss) earnings per share ............................ $ (0.07) $ 0.06 $(0.06) $ 0.12
======== ===== ====== =====
Diluted (loss) earnings per share .......................... $ (0.07) $ 0.04 $(0.06) $ 0.08
======== ===== ====== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THIS FORM
10-Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
F1 -- This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 - "Earnings
per Share."
</LEGEND>
<CIK> 0000900619
<NAME> ECCS, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,021
<SECURITIES> 0
<RECEIVABLES> 5,347
<ALLOWANCES> 288
<INVENTORY> 3,986
<CURRENT-ASSETS> 18,551
<PP&E> 6,032
<DEPRECIATION> 4,098
<TOTAL-ASSETS> 21,885
<CURRENT-LIABILITIES> 4,559
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 17,103
<TOTAL-LIABILITY-AND-EQUITY> 21,885
<SALES> 14,709
<TOTAL-REVENUES> 14,709
<CGS> 10,312
<TOTAL-COSTS> 3,900
<OTHER-EXPENSES> 1,321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (216)
<INCOME-PRETAX> (608)
<INCOME-TAX> 0
<INCOME-CONTINUING> (608)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (608)
<EPS-PRIMARY> (0.06) <F1>
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE FORM
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
F1 -- This amount represents Basic Earnings per Share restated in accordance
with the requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share."
F2 -- This amount represents Diluted Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 - "Earnings
per Share."
</LEGEND>
<CIK> 0000900619
<NAME> ECCS, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<EXCHANGE-RATE> 1
<CASH> 11,397
<SECURITIES> 0
<RECEIVABLES> 5,058
<ALLOWANCES> 243
<INVENTORY> 3,804
<CURRENT-ASSETS> 20,366
<PP&E> 4,562
<DEPRECIATION> 3,521
<TOTAL-ASSETS> 22,519
<CURRENT-LIABILITIES> 4,946
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 17,317
<TOTAL-LIABILITY-AND-EQUITY> 22,519
<SALES> 26,509
<TOTAL-REVENUES> 26,509
<CGS> 19,058
<TOTAL-COSTS> 5,087
<OTHER-EXPENSES> 1,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 1,020
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,020
<DISCONTINUED> 0
<EXTRAORDINARY> 120
<CHANGES> 0
<NET-INCOME> 900
<EPS-PRIMARY> 0.14 <F1>
<EPS-DILUTED> 0.10 <F2>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q.
F1 -- This amount represents Basic Earnings per Share restated in accordance
with the requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share."
F2 -- This amount represents Diluted Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 - "Earnings
per Share."
</LEGEND>
<CIK> 0000900619
<NAME> ECCS, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,339
<SECURITIES> 0
<RECEIVABLES> 7,275
<ALLOWANCES> 258
<INVENTORY> 5,602
<CURRENT-ASSETS> 14,294
<PP&E> 4,361
<DEPRECIATION> 3,374
<TOTAL-ASSETS> 16,393
<CURRENT-LIABILITIES> 9,198
<BONDS> 0
0
21
<COMMON> 45
<OTHER-SE> 6,979
<TOTAL-LIABILITY-AND-EQUITY> 16,393
<SALES> 17,840
<TOTAL-REVENUES> 17,840
<CGS> 12,848
<TOTAL-COSTS> 3,486
<OTHER-EXPENSES> 696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 698
<INCOME-TAX> 0
<INCOME-CONTINUING> 698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698
<EPS-PRIMARY> 0.12 <F1>
<EPS-DILUTED> 0.08 <F2>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE FORM
10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
F1 -- This amount represents Basic Earnings per Share restated in accordance
with the requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share."
F2 -- This amount represents Diluted Earnings per share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 - "Earnings
per Share."
</LEGEND>
<CIK> 0000900619
<NAME> ECCS, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,736
<SECURITIES> 0
<RECEIVABLES> 4,518
<ALLOWANCES> 184
<INVENTORY> 2,255
<CURRENT-ASSETS> 12,566
<PP&E> 4,310
<DEPRECIATION> 3,219
<TOTAL-ASSETS> 14,507
<CURRENT-LIABILITIES> 7,748
<BONDS> 0
0
21
<COMMON> 45
<OTHER-SE> 6,540
<TOTAL-LIABILITY-AND-EQUITY> 14,507
<SALES> 8,737
<TOTAL-REVENUES> 8,737
<CGS> 6,335
<TOTAL-COSTS> 1,622
<OTHER-EXPENSES> 377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 345
<INCOME-TAX> 0
<INCOME-CONTINUING> 345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345
<EPS-PRIMARY> 0.06 <F1>
<EPS-DILUTED> 0.04 <F2>
</TABLE>
